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Reducing Path Dependency in Options PnL

Posted on July 6, 2025 By 
The profit and loss of an options trading strategy can be path-dependent, meaning that interim price movements, not just the final outcome, significantly influence profits and losses due to factors like dynamic hedging, early exercise risk, and volatility shifts. A well-known example is the PnL of a delta-hedged option position, …
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Harvesting the Equity Risk Premia Through Options

Posted on July 2, 2025 By 
The equity risk premium refers to the excess return that investing in the stock market provides over a risk-free rate, typically represented by government bonds. It compensates investors for taking on the higher risk associated with equities. Estimating the equity risk premium is essential for asset allocation, valuation models, and …
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Seasonality in Return Skewness: the Day-of-Week Effect

Posted on June 28, 2025 By 
Seasonality is a well-studied phenomenon in financial markets. It manifests in returns, volatility, and the volatility risk premium. Despite being well documented, little (if any) research has been carried out on the seasonality of skew. Reference fills this gap by studying the day-of-week effect in return skewness. It analyzes …
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Investor Behavior in Crypto During Geopolitical Shocks

Posted on June 24, 2025 By 
Herd behavior refers to the tendency of investors to follow the actions of a larger group, often ignoring their own analysis or information. This collective movement can lead to asset bubbles during bull markets and sharp sell-offs during downturns. Understanding herd behavior is essential for identifying potential mispricings and avoiding …
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Hedging with Puts: Do Volatility and Skew Signals Work?

Posted on June 20, 2025 By 
Portfolio hedging remains a complex and challenging task. A straightforward method to hedge an equity portfolio is to buy put options. However, this approach comes at a cost—the option premiums—leading to performance drag. As a result, many research studies are focused on designing effective hedging strategies that offer protection while …
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Applying Volatility Management Across Industries

Posted on June 16, 2025 By 
Volatility management is a risk and portfolio management technique proposed by Moreira and Muir in 2017 . It has since been widely adopted by industry practitioners. The technique relies on the idea that volatility is autocorrelated but only weakly correlated with future returns. Practically, this means increasing exposure to the …
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Using Random-Maturity Arbitrage to Price Perpetual Futures

Posted on June 8, 2025 By 
Traditional futures contracts have maturity dates, upon which the futures price converges to the spot price. In the cryptocurrency market, the most popular contracts do not have a maturity date. They’re called perpetual contracts. Unlike fixed-maturity futures, perpetuals do not expire. This feature enhances the liquidity of the contract. Because …
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Speeding Up Derivatives Pricing Using Machine Learning

Posted on June 4, 2025 By 
A financial derivative is a financial contract whose value depends on the price of an underlying asset such as a stock, bond, commodity, or index. Accurate valuation of financial derivatives and their associated sensitivity factors is important for both investment and hedging purposes. However, many complex derivatives exhibit path-dependency and …
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Leveraged ETFs: Do They Really Decay?

Posted on May 31, 2025 By 
Leveraged ETFs (LETFs) are financial instruments designed to amplify the daily returns of an underlying index, typically by a factor of two or three. They have received criticism for performance drag or value erosion over time. Despite these concerns, they continue to attract attention and capital from investors. A recent …
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